Wednesday, 4 May 2016

Job Growth Doesn’t Mean We’re Getting Richer

Guest post by Ryan McMaken

In response to recent claims by the Obama administration and others that “millions of jobs” have recently been created, I examined the data here to see if the claims were true. It turns out that job growth since the 2008 recession has actually been quite weak, and hardly something to boast about.

Nevertheless, our conclusions from these analyses tend to rest on the idea that job growth is synonymous with gains in wealth and economic prosperity.

But is that a good assumption?

In an unhampered market, the answer would be no, for several reasons.

First of all, as worker productivity increases, workers would need to work fewer hours to maintain their standard of living.

Second, as goods become less expensive (as a result of rising productivity) it would also be necessary to work fewer hours to maintain the same standard of living.

This need for fewer man-hours could translate into shorter work weeks and shorter days, but it could also manifest itself at the household level in the form of changes from two-income households to one-income households. Or, people may retire earlier, thus leaving the work force.

In other words, in a well-functioning economy over time, less human labour will be necessary to maintain standards of living, all things being equal. (If consumers wish to constantly increase their standard of living of course, they will choose more labour over more leisure for the sake of more consumption.)

Historical Trends in Work Hours

Even in our hampered and un-free economy, we can still see this basic trend at work. The number of work hours necessary to maintain the standard of living our grandparents enjoyed, for example, is less today than it was in 1950.

If middle-class consumers were satisfied with a two-bedroom residence in an unstylish neighborhood, one car, a single phone line, no air conditioning, and no internet access, many of them would require far fewer work hours than is necessary to maintain a common middle-class standard of living today. [Well, in some cities, anyway – Ed.]

In the 1950s for example, my mother shared a bedroom with three brothers in a two bedroom house in central Los Angeles. She went to a private Catholic school where there were 50 students to a classroom. For her family, there were certainly no European holidays or airline travel to seaside resorts.

And yet, no one then would have described this lifestyle as “impoverished” or “lower class.” It was a middle-class lifestyle, but this lifestyle could only be maintained by far more than 40 hours of work at the family business each week, where both parents laboured regularly.

This experience was not atypical.

In spite of increases in the standard of living since then, working hours have actually decreased. Indeed, according to Robert Fogel in The Fourth Great Awakening and the Future of Egalitarianism, from 1880 to 1995 the number of hours spent on work during an average day for a male head of household decreased from 8.5 hours to 4.7 hours. Meanwhile, leisure time increased from 1.8 hours to 5.8 hours.

In a separate study by Thomas Juster and Frank Stafford, it was found that from 1965 to 1981 in the United States, “market work” hours per week fell from 51.6 hours to 44 hours for men. For women, market work rose from 18.9 hours to 23.9 hours. We would expect an increase for women over this period as women began to take on “market work” at higher rates than before. This was for wage work only, though, and if we include “housework” we find that “total work” for women during this time period fell from 60.9 hours to 54.4 hours. Women exchanged some housework for market work over this period, but overall, the work hours decreased. Total work for men decreased also, from 63.1 hours to 57.8 hours. (Housework increased for men over this period.)

In yet another study by Mary Coleman and John Pencavel, average weekly hours worked fell for white men from 44.1 hours in 1940 to 42.9 hours in 1988. It fell for white women from 40.6 hours to 35.5 hours over the same period.

The typical standard of living increased over these periods, as the square footage of housing units increased, automobiles became more common, and amenities like telephones, washing machines, personal computers, and climate control became more common. The work itself also became less hazardous over this time period.

The Invention of “Retirement”

Even as work hours were falling, productivity was rising enough to allow large numbers of workers to leave the work force early in the form of a new-fangled concept known as “retirement.” As explained by W. Andrew Achenbaum in The Wilson Quarterly, working well into one’s so-called golden years was common in the 19th century and before. Prosperous farmers who owned land could afford to significantly cut back hours as they aged, but common labourers generally needed to work as long as possible or face penury.

It was only during the late 19th century, as worker productivity rapidly accelerated, that workers could withdraw from the workforce at an increasing rate. Many became obsolete whether they liked it or not, however. Achenbaum writes:

The obsolescence of the older worker is one reason the period around 1890 marks the beginning of the long-term trend toward the withdrawal of the elderly from the work force. In that year, about two-thirds of men aged 65 and older were still in the labor force — roughly the same proportion found today in developing countries such as Brazil and Mexico. By 1920, that number had dropped to 56 percent, and by 1940 it was down to 42 percent. Today it is 27 percent.

In the bad old days of subsistence wages, workers could labour for decades without many opportunities to accumulate capital, and thus “retirement” was just another word for poverty. As worker productivity and capital accumulation rose, however, private firms could afford to create a new thing called “pension funds” that accelerated the retirement trend.

The advent of government pensions accelerated the trend as well, with large transfers of wealth from current workers to past workers. The fact that these wealth transfers did not reduce the current workers to subsistence levels themselves was also due to the productivity gains of the new industrialised and mechanised workplace. Essentially, workers were now supporting both themselves and current pensioners, while still experiencing perceptible increases in the standard of living. Such a situation would never have been either economically or politically feasible in an earlier age when workers would likely have revolted against a new tax that would have impoverished them for the sake of retired workers. This new world in which workers could support their families, plus some strangers they never met, was a triumph of markets that ironically allowed governments to get away with higher taxes.

So, Is Job Growth Progress?

Once upon a time, we measured economic progress in terms of the ability of households to feed themselves and sleep in a warm bed. We still do this in the developing world where “extreme poverty” is a real problem.

In the industrialized world, however, “extreme poverty” does not exist, and 78 percent of “the poor” have air conditioning, and a majority have cell phones. The lifestyle enjoyed by my mother in the 1940s would today be deemed “overcrowded” and “substandard” by federal agencies. At the time, such conditions were considered to be quite middle class. But, as Ludwig von Mises once remarked, “the luxury of today is the necessity of tomorrow.”

Apparently, if we were to measure necessary work in terms of the need to fund basic food and shelter, the number of work hours needed today would hardly constitute a full-time work schedule.

This is why over decades, we find that the amount of labour done by human beings has declined over time. Machines now do the work that many people once did, and more economically.

This is why the US now has more industrial production today than in the past, even though fewer people are employed in manufacturing. This is why our grandparents worked more hours than our parents, even though standards of living are higher now than they were in the 1960s.

So, over the long term, we cannot say that more jobs equals more prosperity. In fact, one could just as easily argue that fewer jobs, fewer work hours, and fewer workers illustrates gains in prosperity. Child labourers, for example, are no longer essential to maintaining a family’s standard of living—the need for child labour being driven out by increased prosperity. All those jobs are long gone.

So, how should we respond when politicians claim to have “created millions of jobs”? Should we assume this is a measure of economic improvement?

Over the short term, this may yet be a useful metric.

But we must still ask ourselves if the economy changed fundamentally over the past ten years that would lead far fewer people to need employment.

More importantly, we must consider if the price of goods and services has decreased significantly.

Are more people voluntarily electing to adopt a lower standard of living for the sake of more leisure? Or to pursue non-market work?

These are all questions that should be considered when we speak of jobs and economic improvements. Really, the only measure that matters is real household wages and wealth, and what can be acquired with it. Anything else is groping for answers with tangential data, and the whole endeavuor illustrates the limits of aggregated economic data.

1 comment:

I recall reading in Popular Mechanics (?) in the 1960's (as I very vaguely recall) when young that we would need to retrain to cope with all the money and leisure time coming our way. The reality is that we do more with less today but not all is the result of smarter working with that reducing labour requirements. My experience, and my wife's, has consistently been working harder because no-one wants to pay much for anything so effective hourly income has been falling for us. Our advantage is that we were debt free until wife bought another couple of houses as there seemed no point in having money in the bank with declining returns. That may be the way it is in 2016 but the article is repeating old predictions that didn't come to pass then and won't now. Competition and a global market has much to commend it but working less while making a decent living are not part of the plan for the average Joe in the west as he cannot compete with the third world. The world doesn't need endless widgets and we cannot all work in service industries - at some point someone gets less to make the ledger balance.

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